Tax Codes in New Zealand: A Guide for Employers and Employees

Last Updated: December 2025

Getting tax codes wrong is one of the most common payroll mistakes in New Zealand—and it’s expensive. Wrong tax codes lead to unexpected tax bills, unhappy employees, and IRD penalties. Whether you’re an employer processing payroll or an employee wondering why your pay seems short, understanding NZ tax codes is essential.

What Are Tax Codes and Why Do They Matter?

Tax codes tell your employer how much PAYE (Pay As You Earn) tax to deduct from your wages before you receive your pay. Get it right, and you’ll pay approximately the correct amount of tax throughout the year. Get it wrong, and you could face a nasty surprise at tax time—either a large bill to pay or discovering you’ve overpaid all year.

Unlike tax codes in countries like the UK (which use numbers and letters), New Zealand tax codes are simple letter combinations like M, ME, S, or M SL. But don’t let their simplicity fool you—choosing the wrong one can be costly.

How New Zealand’s Progressive Tax System Works

New Zealand uses a progressive tax system, meaning you pay more tax as your income increases. Your income is taxed in “layers”:

2025/2026 Tax Rates:

• Up to $15,600: 10.5%
• $15,601 to $53,500: 17.5%
• $53,501 to $78,100: 30%
• $78,101 to $180,000: 33%
• Over $180,000: 39%

This is why secondary tax exists. If you have multiple income sources, your second job pushes you into higher tax brackets, so it needs to be taxed at a higher rate from the start.

The IRD have a useful PAYE TAX Calculator available HERE!

Primary Tax Codes: For Your Main Income

Your main income is your highest-earning job or benefit. Here are the most common primary tax codes:

M Tax Code

The standard tax code for most New Zealand employees. Use M if:

• This is your only or highest-paying job
• You’re not receiving Working for Families tax credits
• You’re not receiving NZ Super, Veteran’s Pension, or a benefit
• You don’t have a student loan to repay
• Your annual income is outside the $24,000-$70,000 range (for Independent Earner Tax Credit)

ME Tax Code

Includes the Independent Earner Tax Credit (IETC) of up to $520 per year. Use ME if:

• Your annual income is between $24,000 and $70,000
• You don’t receive Working for Families tax credits
• All other M tax code criteria apply

The ME code automatically gives you the tax credit in your pay, rather than waiting until year-end.

M SL or ME SL Tax Codes

Identical to M or ME, but with student loan repayments deducted. The “SL” suffix is critical—if you forget it, your employer won’t deduct student loan repayments, and you’ll get a bill from IRD at the end of the tax year.

Student loan repayments: 12% of income over $22,828 annually (2025/26 threshold)

Special Primary Tax Codes

CAE: Casual agricultural workers (seasonal work, up to 3 months) SH, STC, ST: Shearers and shearing shedhands EDW: Election day workers (during the 2-week voting period only) NSW: Recognised seasonal workers or foreign fishing crew WT: Independent contractors receiving schedular payments

Secondary Tax Codes: The Misunderstood Tax

If you have more than one job, your second (and third, fourth, etc.) job needs a secondary tax code. This is where many people—and employers—get confused.

Why Secondary Tax Exists

Imagine you earn $50,000 from your main job and $10,000 from a weekend job. Your main job is already using up your lower tax brackets (10.5% and 17.5%). Your weekend job income sits on top of this, so it should be taxed at the rate that applies to income between $50,000 and $60,000 (which is 30%).

If both jobs used an M code, you’d be undertaxed all year and receive a large bill after March.

Secondary Tax Codes Explained

Choose based on your total annual income from all sources:

SB: Total income under $15,600 (10.5% tax rate) S: Total income $15,601 to $53,500 (17.5% tax rate)
SH: Total income $53,501 to $78,100 (30% tax rate) ST: Total income $78,101 to $180,000 (33% tax rate) SA: Total income over $180,000 (39% tax rate)

Add “SL” to any secondary code if you have a student loan (e.g., S SL, SH SL).

Common Secondary Tax Mistakes

Mistake #1: Using M code on two jobs simultaneously
IRD will detect this and change one to a secondary code automatically—then notify both you and your employer.

Mistake #2: Thinking secondary tax is “extra” tax
Secondary tax isn’t an additional tax—it’s just paying tax at the correct rate for your income level. At year-end, IRD calculates your total income and applies the progressive tax rates. If you’ve paid too much, you get a refund.

Mistake #3: Using SB when you should use S or SH
Many people assume their small second job qualifies for SB, but the code is based on total income, not just the secondary job’s income.

The IR330 Form: Your Tax Code Declaration

When you start a new job, you must complete an IR330 Tax Code Declaration form. This tells your employer which tax code to use.

Employer Responsibilities

As an employer, you must:

• Collect a completed IR330 from every new employee before their first pay
• Keep the IR330 on file for 7 years after the employee’s last payment
• Use the tax code the employee has declared
• Change the tax code if the employee provides a new IR330
• Deduct tax at the non-notified rate of 45% if the employee doesn’t provide an IR330

Important: Even if you know the employee’s tax code is wrong, you must use what they’ve declared on the IR330. You cannot override it without their written consent.

When IRD Changes Tax Codes

IRD monitors tax codes through payday filing data. If they detect you’re using an unsuitable tax code (like M on two jobs), they will:

1. Notify you that your tax code is being changed
2. Inform your employer to change it
3. Automatically adjust the code in their system

You can dispute this change by contacting IRD, but you’ll need to justify why the tax code is appropriate for your circumstances.

Special Situations and Tailored Tax Codes

Multiple Income Sources

If you receive income from several sources (e.g., wages, NZ Super, ACC, rental income), you might consistently owe tax or get large refunds. In these cases, you can apply for a tailored tax code.

A tailored tax code is customised to your specific situation and helps you pay approximately the right amount of tax throughout the year. You apply through myIR, and IRD calculates a specific tax rate for you.

Important: Tailored tax codes must be renewed annually and only last from approval date to 31 March.

NZ Superannuation and Tax Codes

When you start receiving NZ Super, you need to decide whether it’s your main or secondary income:

If NZ Super is your main income: Use M or M SL If NZ Super is secondary income: Use the appropriate secondary code (S, SH, ST, SA)

Many retirees who continue working use NZ Super as their main income source and apply a secondary code to their employment income.

ACC, Parental Leave, and Benefits

• ACC weekly compensation: Choose a tax code like any other income source
• Paid Parental Leave (PPL): Choose a tax code—it’s treated as taxable income
• Main benefits (from MSD): Must use M code; any other income must use secondary codes

Student Loans and Tax Codes

If you have a student loan, you must include “SL” in your tax code for every source of income over the repayment threshold.

Repayment threshold: $22,828 per year (2025/26)
Repayment rate: 12% of income over the threshold

Special note for secondary income: If your main job earns less than $22,828 but your combined income exceeds this, you can apply for a special repayment deduction rate on your secondary income to avoid overpaying.

Common Tax Code Problems and How to Fix Them

Problem 1: “I Got a Tax Bill at Year-End”

Most common causes:

• Using M code on multiple jobs
• Forgetting to add “SL” for student loan repayments
• Using SB when total income exceeds $15,600
• Changed jobs and IRD counted both as active simultaneously

Solution: Check all your tax codes for the year. If wrong, complete new IR330 forms for current jobs. For past years, you’ll need to pay the bill, but you can set up a payment plan with IRD.

Problem 2: “IRD Changed My Tax Code Without Asking”

IRD can and will change unsuitable tax codes. They do this to prevent you from getting a large bill at year-end.

Solution: If you disagree, contact IRD immediately. You may need to explain your circumstances or apply for a tailored tax code if your situation is complex.

Problem 3: “I Changed Jobs and Now I’m Overtaxed”

This happens when IRD’s system still shows your old job as active. Your new job gets treated as secondary income.

Solution:

1. Check myIR to confirm your old employer has filed your final pay
2. Contact your old employer to ensure they’ve filed correctly
3. Complete a new IR330 with your correct tax code
4. Give it to your new employer
5. You’ll get any overpaid tax back as a refund at year-end (or sooner if you file early)

Problem 4: “My Employee Hasn’t Provided a Tax Code”

As an employer, you cannot process payroll without a tax code.

Solution:

• Request the employee complete an IR330 immediately
• If they refuse or don’t provide one before payday, you must deduct tax at the non-notified rate of 45%
• This high rate protects both you and the employee from underpayment penalties
• Once they provide an IR330, adjust the tax code for future pays (you can’t backdate it)

Tax Codes and Payroll Compliance

For Employers: Your Legal Obligations

Under New Zealand employment law and IRD regulations, employers must:

1. Collect IR330 forms from all employees before first payment
2. Apply the declared tax code exactly as written
3. Keep IR330 forms for 7 years after the employee’s last payment
4. File payday returns with correct tax codes within 2 working days of payday
5. Update tax codes when employees provide new IR330 forms
6. Use non-notified rate (45%) when no tax code is provided

Common Employer Mistakes

Mistake #1: “Helping” employees choose tax codes
Don’t do it. Employees are responsible for their own tax codes. You can direct them to IRD’s online tool (ird.govt.nz) or the IR330 flowchart, but you cannot advise them which code to use.

Mistake #2: Overriding employee tax codes
Even if you know it’s wrong, you must use the declared code. The only exception is if IRD instructs you to change it.

Mistake #3: Not keeping IR330 forms
IR330 forms must be retained for 7 years. If IRD audits your payroll, they will ask to see them.

Mistake #4: Using old tax codes for returning employees
If an employee returns after leaving, they must complete a fresh IR330. Don’t assume their circumstances haven’t changed.

The ACC Earners’ Levy: Part of Your Tax Code Deduction

While not technically a tax, the ACC earners’ levy is deducted alongside PAYE. All employees pay:

Current rate (2025/26): $1.67 per $100 of income
Maximum earnings: $152,791
Maximum annual levy: $2,551.59

This is included in the tax deducted through your tax code and may appear on your payslip as a separate line item.

How to Check If You’re on the Right Tax Code

For Employees:

1. Use IRD’s online tool: Visit ird.govt.nz and use their “What tax code should I use?” questionnaire
2. Review your circumstances:
   • Has your income changed significantly?
   • Have you started or stopped a second job?
   • Did you pay off your student loan?
   • Are you now receiving a benefit, NZ Super, or ACC?
3. Check your payslip: Your tax code should appear on every payslip
4. Review last year’s tax assessment: Did you get a large refund or bill? This suggests your tax code might need adjusting

For Employers:

1. Audit IR330 forms: Ensure you have current forms for all employees
2. Cross-check payday filing: IRD will alert you if they detect unsuitable tax codes
3. Review employee queries: If employees complain about unexpected tax bills, their tax codes may be wrong
4. Monitor IRD correspondence: IRD will notify you if they change employee tax codes

Tax Code Changes: When and How

Employees should update their tax code when:

• They start or stop a second job
• Their income changes significantly
• They pay off a student loan
• They start receiving a benefit, NZ Super, or ACC
• They start or stop receiving Working for Families
• Their annual income moves into/out of the $24,000-$70,000 IETC range

To change your tax code:

1. Complete a new IR330 form
2. Give it to your employer/payer
3. The new code applies from the date your employer receives it (not backdated)

Getting Help with Tax Codes

For Employees:

• IRD website: ird.govt.nz has online tools and the IR330 form
• IRD helpline: 0800 227 774
• myIR: Check your current tax codes and income sources
• Tax agent or accountant: For complex situations

For Employers:

• IRD employer helpline: 0800 377 774
• Payroll bureau: Outsource your payroll to specialists (like The Paymasters)
• Payroll software: Most systems have built-in tax code validation
• Professional payroll training: NZPPA (NZ Payroll Practitioners Association) offers courses

The Paymasters’ Expert Advice

After processing millions of payslips over 25+ years, here’s our insider advice:

For Employees:

1. Review your tax code annually in April when the tax year changes
2. Don’t assume SB is right for small second jobs—check your total income
3. Add “SL” if you have a student loan—this is the most forgotten suffix
4. Keep copies of your IR330 forms—you might need to prove what you declared
5. File your tax return early if you’ve overpaid—don’t wait until the deadline

For Employers:

1. Make IR330 forms part of onboarding—don’t process payroll without them
2. Use payroll software with built-in tax code validation
3. Don’t give tax advice—direct employees to IRD’s tools
4. Keep digital copies of IR330 forms in a secure system
5. Consider outsourcing if tax code management becomes overwhelming

When to Outsource Your Payroll

Managing tax codes is just one piece of the payroll compliance puzzle. If you’re dealing with:

• Frequent tax code errors
• Employee complaints about tax bills
• IRD queries or audits
• Difficulty keeping up with legislative changes
• Time-consuming payroll administration

…it might be time to consider outsourcing to a professional payroll bureau.

At The Paymasters, we handle tax codes, payday filing, Holidays Act calculations, KiwiSaver, student loans, and all other payroll compliance for over 350 clients. Our NZPPA-certified staff ensure your employees are on the right tax codes and your business stays compliant.

Key Takeaways

✓ Tax codes tell your employer how much PAYE to deduct from your pay

✓ M or ME are the most common primary codes—with or without “SL” for student loans

✓ Secondary codes (S, SH, ST, SA, SB) are for additional income sources

✓ The IR330 form is mandatory and must be kept for 7 years

✓ Wrong tax codes lead to year-end bills or overpayments

✓ IRD monitors tax codes through payday filing and will change unsuitable ones

✓ Employees choose their own tax codes—employers must use what’s declared

✓ Tailored tax codes are available for complex situations

✓ Both employees and employers have legal obligations around tax codes

Need Help with Payroll Compliance?

Getting tax codes right is essential for payroll compliance and employee satisfaction. If you’re struggling with tax code management, Holidays Act compliance, or any other aspect of New Zealand payroll, The Paymasters can help.

With over 25 years of experience, NZPPA-certified staff, and expertise in MYOB systems, we take the stress out of payroll compliance. Contact us HERE!

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Disclaimer: This guide is for informational purposes only and does not constitute tax advice. Tax codes and rates are subject to change. Always refer to the IRD website (ird.govt.nz) for the most current information, or consult with a qualified tax professional for advice specific to your circumstances.

About The Paymasters Limited
The Paymasters Limited is a Christchurch-based payroll bureau with over 25 years of experience serving approximately 350 client entities across New Zealand. We process around 25,000 payslips monthly and specialise in outsourced payroll services, MYOB system migrations, compliance management, and white-label services for accounting firms. Our NZPPA-certified staff have deep expertise in New Zealand employment law, including the Holidays Act 2003 and Employment Relations Act 2000.